Correlation Between Western Mining and Changchun BCHT

Can any of the company-specific risk be diversified away by investing in both Western Mining and Changchun BCHT at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Western Mining and Changchun BCHT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Mining Co and Changchun BCHT Biotechnology, you can compare the effects of market volatilities on Western Mining and Changchun BCHT and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Western Mining with a short position of Changchun BCHT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Mining and Changchun BCHT.

Diversification Opportunities for Western Mining and Changchun BCHT

0.76

Correlation Coefficient

Western Mining  Changchun BCHT

Poor diversification

The 3 months correlation between Western and Changchun is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Changchun BCHT Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun BCHT Biote and Western Mining is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Western Mining Co are associated (or correlated) with Changchun BCHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun BCHT Biote has no effect on the direction of Western Mining i.e., Western Mining and Changchun BCHT go up and down completely randomly.

Pair Corralation between Western Mining and Changchun BCHT

Assuming the 90 days trading horizon Western Mining Co is expected to under-perform the Changchun BCHT. But the stock apears to be less risky and, when comparing its historical volatility, Western Mining Co is 1.27 times less risky than Changchun BCHT. The stock trades about -0.23 of its potential returns per unit of risk. The Changchun BCHT Biotechnology is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,693  in Changchun BCHT Biotechnology on September 20, 2024 and sell it today you would lose (58.00) from holding Changchun BCHT Biotechnology or give up 2.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Western Mining Co  vs.  Changchun BCHT Biotechnology

Western Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Mining Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Western Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Changchun BCHT Biote

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun BCHT Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun BCHT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Mining and Changchun BCHT

The main advantage of trading using opposite Western Mining and Changchun BCHT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Mining position performs unexpectedly, Changchun BCHT can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Changchun BCHT will offset losses from the drop in Changchun BCHT's long position.

The idea behind Western Mining Co and Changchun BCHT Biotechnology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.